Judges and commentators (myself included) routinely assert that an element of a claim under Sections 11, 12(a)(2) and 17(a) of the â€™33 Act and Rule 10b-5 of the â€™34 Act is a misstatement or omission of a material fact. However, the omission part of the element, with slight differences in phrasing, is actually an omission of â€œa material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.â€? See Rule 10b-5(b). This phrase is a mouthful, hence my (and I assume others) use of â€œmaterial omissionâ€? or the like for short. This shorthand, however, promotes the common misconception that these provisions create a duty to disclose all material information. This is not correct. They do not impose liability for omissions of material facts that are not necessary to make the statements made, in the light of the circumstances under which they were made, not misleading. Maybe this is just splitting hairs with respect to Sections 11 and 12(a)(2) given the litany of disclosure requirements for a public offering, but I donâ€™t think it is hair splitting for 17(a) and 10b-5 in various contexts. Hence, Iâ€™m trying to come up with a new shorthand that reflects the subtle distinction. Any ideas?
Cite this Article
Bill Sjostrom, Is the phrase "material omission" materially misleading?, Truth on the Market (April 05, 2006), https://truthonthemarket.com/2006/04/05/is-the-phrase-material-omission-materially-misleading/